Ethiopia has sustained to be the leader in its livestock resources in Africa which proves the availability of a huge potential for the country's leather industry. The country possesses one of the world's largest livestock populations with a 57,829,953 cattle population that puts the country first in Africa and sixth in the world. The nation is also third in Africa and tenth in the world with 28,892,380 sheep population in addition to 29,704,958 goat population which makes the nation 3rd in Africa and 8th in the world. The hides and skin supplied to the tanneries have reached 1.4 million cow hides, 6.7 million goat skins and 13.2 million sheep skins. Accordingly, says Leather Industries Development Institute (LIDI) Corporate Communication Director Berhanu Serjabo, in relation to the leather sub-sector, the abundance of livestock in Ethiopia represents a natural strength, speaking to The Ethiopian Herald.
Sheep and goat skin represent the bulk of Ethiopian leather production. The country is known in the international leather market for its superior qualities of sheep skin, acknowledged as being the best in the world. The Ethiopian sheep skin are sought for high class and high value glove leather and the goat skin are equally acknowledged to be the finest for suede making for garments and footwear, according to Berhanu.
In fact, the international leather market has coined special names for these two varieties of skin after two local places - Selallie and Bati. The sheep skin are referred to as Selallie Genuine and the goat skin Bati Genuine which are offered at premium prices over all others. The sheepskin in particular has a reputation for its fibre strength and other qualities attractive to the international market which is best suitable for dress gloving and shoe upper. Bati Genuine are mainly used for shoe upper and leather goods. Cow hides are mainly used for shoe uppers.
This puts Ethiopia at the centre of the booming leather industry as a key supplier of hides and raw materials to the growing industry of leather and leather products. Despite its significance as a livestock producer, the off-take rate is of a lesser amount (13.87 per cent cow hides, 27.34 per cent goat skins and 40.29 per cent sheep skins) and the country has not utilized its rich livestock resource.
Leather manufacturing is one of the oldest industries globally and particularly in Ethiopia which has remained and sprung forward as an economically important sector in terms of engaging citizens intensively and in export business. The Ethiopian leather industry is relatively an older industry with more than 90 years of involvement in processing leather and producing leather products. The first two tanneries were established and vertically linked to two shoe factories: ASCO Tannery & ASCO Shoe Factory (the present Addis Ababa Tannery and Tikur Abbay Shoe Factory) and Darmar Tannery & Shoe Factory (the present Awash Tannery and Anbessa Shoe Factory), pursuant to reports from LIDI.
Technologically, the industry has gone steps forward since processing in pits to paddle and drums, from letting wastes to water bodies to treating effluent in a plant, recycling and reuse of wastes and so on.
There are 32 tanneries nationwide converting hides and skin to different types of finished leather. This sector is relatively at its mature stage and has successfully moved to the production and export of higher value-added and fully processed finished leather. There is a possibility of producing up to 500 million square feet of finished leather per year.
Footwear Industry is at an infant stage of development in the country only with two factories before 1991 but at present it has reached 24 medium and large scale footwear manufacturers. The production capacity of shoe factories including production of Small and Micro enterprises rose to 15 million pairs per year. Therefore, the shoe industry is an emerging and promising industry in the country.
Besides, there are 23 garments and goods factories and three glove factories producing leather gloves, garments, bags and different kinds of leather products. This industry, particularly glove production is an emerging segment and appears to be more promising.
Despite the huge and diversified livestock population available for the leather sector; the industry has not developed as it is expected. Yet, it is showing a great progress on the phase of producing highly value added products.
According to the Second Growth and Transformation Plan of the leather industry sub-sector, it has been believed that the sub-sector industries at the end of the GTP-II could earn 800 million USD, considering that the leather manufacturing industries could enhance their productivity and compete to sell their products in the global market by exerting their full capacity.
Unfortunately, said Berhanu, the export performance till now is found to be low due to limited managerial capacity in the sub-sector to compete in the global market, lack of application of better technology, absence of product diversification, confined market destination other than China, Hong Kong, India, Italy and others and inability to seek for wider choices for the sub-sector still exists that hinder the sub-sector from moving a step forward. "It is because of these facts that the export performance of this fiscal year has become lower," he added.
Leather Industry Development Institute is working hard for a steady growth of the leather and leather products sector through human resource development, transformation of technologies, benchmarking, conducting research, and quality assurance, promoting investment and marketing insists Berhanu.
The government has planned to fully utilize its livestock resources through value addition and thereby create more jobs for its citizens and boost exports. Official statistics from the Ethiopian Revenue and Customs Authority show that of the total leather products export, still about 73 per cent is earned from finished leather, which has the potential to be converted into other value added products such as shoes, bags, gloves or garment.
In recent years however, the country's leather industry has attracted several foreign companies that have set up factories to create value added products. In this way, the local industry has already created jobs for millions of Ethiopians and increased export earnings of leather products including gloves and garments.
In 2013 for example, earnings stood at 132 million USD from 76 million USD in 2008. Out of this figure, around 30 million USD came from shoe exports. While Ethiopia has been exporting its leather to Europe and Asia for decades, where it is transformed into fashionable items, recent investments in Ethiopia-based factories by foreign companies are helping to change this trend, and create jobs for tens of thousands of Ethiopians. This, in return, is expected to boost the local consumption of Ethiopian leather products, which will be even more profitable to the industry.
Ethiopia has taken a number of initiatives to create an investor friendly environment and attract investors. The government has created conducive policy environment for investment through deploying customs duty exemption on imported capital goods, construction materials, and spare parts worth up to 15 percent of the value of imported capital goods, income tax exemption that may go from two to five years.
In addition Berhanu said, improved service delivery through shortening period of licensing, and renewal of permits; exemption of imported inputs for export purposes from indirect taxes; access to long-term credit with low interest rate to avoid problems of working capital for exporters; allotment of finance for loan for those engaged in export activities; provision of access to infrastructure for those engaged in export, creating linkages with foreign investors in marketing and production; and improved transport and transit services to support investment, are the major incentives provided by the government to boost the industry.
Besides, Leather Industry Development Institute has established strong industries and universities linkage to alleviate gap of trained and skilled human power in the sector for the investment. Currently there are three universities that offer first degree program in leather technology, footwear and leather goods technologies with the support of Leather Industry Development Institute (LIDI). LIDI also offers training on leather manufacturing technology, footwear manufacturing technology, leather garment and leather goods manufacturing technologies at its premises from level I to level IV. Other 39 Technical and Vocational Colleges are also offering training on footwear and leather goods manufacturing technologies at various levels.
As the nation has entered a transition from agricultural led economy to manufacturing led industries, the country has given due attention to expand the manufacturing industries leather and leather products as well through industrial parks and cluster development.
In order to bring structural transformation in the industry and lead the country to middle class economy, it is significant to increase the number of local manufacturers in the sector and create cluster based and one shop service industries. Accordingly, it has been planned to establish cluster based industries in textile, leather, agro-processing, chemical, metal, etc... in all regions and zones of the country.
Currently, the government is processing all the preliminary activities to construct Leather City at Modjo. Meanwhile, two foreign companies: Huajian International Shoe City and George Shoe are constructing their own Industrial Parks.
Leather is one of the important commodities that bring considerable export earnings to the Federal Democratic Republic of Ethiopia. It is construed that the trade of manufacture and export of leather footwear, leather goods and leather garments is one of the promising sectors for the economic and social growth of Ethiopia.
Ethiopia has come up with GTP II that has accelerated the country's economy to mount up rapidly to the level of countries with middle income earnings. The overall GTP II has laid a policy that has a potential to create structural transition on the Nation's economy.
The first GTP had brought fast development to the leather sub- sector industry and paved the way to the sub sector to be competitive in the global market by developing its capacity in transforming technology, creating trained man power, bench marking and adding value to the leather sector products.
However, the country has not utilized these resources as required. Further, even though African countries often rank leather high in importance as an export commodity, leather and leather products generally account for less than four percent of total exports. This is largely due to the fact that the leather industry in most African countries remains an unorganized sector.
However, things are now changing rapidly as more and more countries around the world are looking to source their requirements for leather and leather products from African countries.
With regard to this, Berhanu said that, India, for instance, is now looking to import leather from East Africa. Faced with the threat declining leather exports, the Indian Council for Leather Exports (CLE) recently sent a team of Indian exporters to Ethiopia and Kenya to identify future prospects of joint ventures with tanneries in these African countries.
Others such as Huajian of China and George Shoes of Taiwan have already positioned their factories in the country and are manufacturing and exporting to brands such as Guess, Calvin Klein and so on, he added. "These factories are still on expansion in different cities of the country," said Berhanu.
A recent study conducted with a focus on the industry recommended a handful of viable solutions to reinforce this high potential sector. According to the study, improving traditional animal husbandry practices, improving sanitary conditions, educating hides and skins handlers to avoiding quality deterioration are all set to increase productivity in the leather sub-sector.
A study on the influence of animal treatment on the quality of the skin has proven that progress can be made and have an important influence on the whole leather chain. The ministry of Agriculture also started a programme to inform farmers across the country of the importance of a better treatment of animals. As for the industry itself, it is evolving.
Although the added value is greater for other products and industries, the industry remains a micro-niche market. In a way, the finished leather goods industry in Ethiopia may be described as an industry based rather on recycling than on the exploitation of the natural resources of the country as it bases on wastes of the meat industry. The comparative advantage itself can be discussed, as the Ethiopian case shows that the presence of a natural resource does not necessarily imply the existence of a competitive advantage. Here, the downstream business of leather transformation has to adapt itself to the poor quality of the major part of the skins due to the upstream processing. The development of a leather transformation industry with a real penetration on international market would thus need a deep transformation of the whole chain, recent efforts by the government and investors remaining encouraging.